Bitcoin is becoming an everyday topic of conversation, this week has seen bitcoin hit a peak of over $16,000 following the cryptocurrency’s debut on Wall Street, a massive rise from where it was at the beginning of 2017 where it cost just over $950 to purchase a Bitcoin. With this rise in interest from the public and increasing value, Bitcoin faces the risk of becoming more susceptible to attacks from hackers and other malicious users.
Bitcoin was invented by an unknown group or person referred to as Satoshi Nakamoto. It is the first de-centralised cryptocurrency worldwide i.e. there is no single administrator or central bank. Transactions take please between users for goods and services without a third party intermediary. The bitcoin network is peer to peer and transactions take place through the use of cryptography. A key factor of bitcoin is that transactions are anonymous and are verified by “miners”. These transactions are then recorded in a public distributed ledger called Blockchain.
Using Bitcoin, a person can buy almost anything; from computers, houses to coffee. Bitcoin wallets are used to send transactions to and from a user. Wallets have both a public key, which anyone can see (quite similar to an email address) and a private key which (similar to a password). Without this private key, bitcoin cannot be accessed.
Bitcoins are created through a process known as “mining”. New Bitcoins are issued to agents known as “miners”, as payment for processing Bitcoin transactions and adding them to a public ledger of transactions, also known as the Blockchain.
The Blockchain is a de-centralised ledger of all transactions in a network. Using Blockchain technology, participants in the network can confirm transactions without the need for a trusted third party.
The bitcoin protocol itself is secure due to the Blockchain technology. However, the same cannot be said for the threats posed to accompanying sites and services. There are ways in which Bitcoin can be hacked and stolen. The majority of these ways come down to negligence or error. For example:
"Only time will tell if Bitcoin will be able to survive these potential vulnerabilities and future risks."
Although bitcoin is a digital currency, it is not recommended to store the bitcoin online as this poses a security threat. An example of this security issue that we have seen is the “Inputs.io” hack.
Just last week nearly $64m in bitcoin had been stolen by hackers who broke into Slovenian-based bitcoin mining marketplace NiceHash. This was a highly professional social engineering hack which resulted in 4,700 bitcoin being stolen. Once again this is proving that online security is a massive concern for cryptocurrencies as digital wallets become increasingly popular targets for hackers.
Double Spending is another threat that faces bitcoin:
In conclusion, bitcoin and blockchain are currently secure, however there are:
Only time will tell if bitcoin will be able to survive these potential vulnerabilities and future risks. As bitcoin continues to develop and become an integral part of the financial system, security has to be a key focus for anyone dealing with bitcoin and other cryptocurrencies.
This article was first published in the Irish Examiner on the 18 December 2017
Director, PwC Ireland (Republic of)
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